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Title:Deferred Compensation and Gift Exchange : An Experimental Investigation into Multi-Period Labor Markets PDF Logo
Authors:Wallace, Brian
Seltzer, Andrew J.
Huck, Steffen
Issue Date:2004
Series/Report no.:IZA Discussion paper series 1193
Abstract:This paper examines the relationship between firms? wage offers and workers? supply of effort using a three-period experiment. In equilibrium, firms will offer deferred compensation: first period productivity is positive and wages are zero, while third period productivity is zero and wages are positive. The experiment produces strong evidence that deferred compensation increases worker effort; in about 70 percent of cases subjects supplied the optimal effort given the wage offer, and there was a strong effort response to future-period wages. We also find some evidence of gift exchange; worker players increased the effort levels in response to above equilibrium wage offers by a human, but not in response to similar offers by a computer. Finally, we find that firm players who are initially hesitant to defer compensation learn over time that it is beneficial to do so.
Subjects:deferred compensation
pensions
experimental labor economics
personnel economics
gift exchange
incentives
shirking
JEL:M51
J41
J31
C91
M52
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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